Enterprise Surveys have shown that large variances in training incidence exist across firms. A natural question then is why do certain firms invest more in training and others do not. There is a certain amount of cross-country and individual country evidence in the literature to identify why this is the case.
The only cross-country/cross-region survey in developing countries that sheds light on the training determinant is the WBES. This survey contains questions where firms are asked to rank on a scale of one (not important) to five (very important) the relevance of seven statements to their decision to provide little or no training (Batra, 2003):
1) training is not affordable because of limited resources; 2) training is costly because of high labour turnover; 3) firm lacks knowledge about training techniques and organisation; 4) firm used a mature technology, so learning-by-doing is sufficient; 5) informal training is adequate; 6) skilled workers are readily hired from other firms; 7) firm sceptical about the benefits of training.
Among the most important reasons for providing little or no training, East Asian firms responded: 4) mature technology (45 per cent); 5) adequacy of informal training (35 per cent); and 2) labour turnover (33 per cent), to be the three most important determinants. Firms in LAC region responded: 6) availability of hiring skilled workers from other firms (44 per cent); 4) mature technology (35 per cent); 5) adequacy of informal training (33 per cent), being the three key reasons. For firms already using mature technologies, there is limited scope for improving on existing techniques and workers can become more proficient by learning by doing or through informal training (Batra, 2003).
The WBES also indicates that 27 per cent of firms in East Asia and 13 per cent of firms in the LAC region face training constraints due to 1) non-affordability coming from limited resources. This is likely to be the case due to the credit constraints faced by many enterprises in developing countries. While there are increasing numbers of training grants and subsidy schemes available in developing countries, not all the firms are eligible for training subsidies and credit availability may thus be important. Small- and medium-sized enterprises (SMEs) are more likely to face this type of training constraint since they are the ones who are less likely to have access to the credit market. Indeed, the WBES show that, in East Asia, 29 per cent of small-sized firms, and 19 per cent of medium-sized firms cannot afford training due to limited resources, whereas only 13 per cent of large-sized firms cannot afford it (Batra, 2003).
Lack of knowledge also appeared to be an important reason for providing little or no training. This was especially true in East Asia (24 per cent). Larger firms are more likely to have better access to information on training techniques and organisation.
Indeed, in East Asia, only 18 per cent of large firms claimed to have constraints while more than 28 per cent of small firms lacked access to such information (Batra, 2003).
Firms having a perception of high-labour turnovers is another important reason why firms provided less or no training. Thirty-three per cent of firms in East Asia and 18 per cent of firms in the LAC region indicated their doubt that training investment is not worthwhile due to worker turnovers. This is more likely to be the case among small firms facing difficulties, whether financial or contractual, in providing incentives to keep trained workers. This is verified by the high percentage of small firms (32 per cent) showing concerns, while a smaller fraction of large firms (22 per cent) indicate this to be a problem.
To sum up, the WBES indicates that firms in East Asia and LAC face training constraints due to a number of market failures including information constraints, credit constraints and labour turnovers. These constraints were found to be less binding for larger firms. Larger firms have much wider opportunities to receive information regarding training techniques and organisation methods. Their training burden per worker is likely to be lower than smaller firms, since the opportunity cost of losing one employee in training activities and per worker cost of training is presumably lower.
Studies that focus on individual countries using firm surveys are consistent with these findings. For example, Zeufack (1999), Tan and Batra (1996), Tan and Lopez1Acevedo (2003), and Miyamoto and Todo (2003) show that the effect of firm size on training incidence is significant and large for Mexico, Indonesia, Thailand and Malaysia.
Miyamoto and Todo (2003) use variables capturing legal status26 in order to capture the extent of credit constraint among Indonesian firms. They find that having no legal status reduced the probability of training. Note that the findings that large firm size positively affects training is consistent with firms not training due to information and credit constraints and labour turnovers. This is because larger firms are less likely to be credit constrained, more likely to have access to information on training, and less likely to suffer from high labour turnovers. Smaller firms on the other hand usually find it hard to gain credits, participate in training workshops, face difficulties replacing workers engaging in training activities, and will not be able to provide attractive incentives for workers not to quit after training.
Another interesting finding from these studies is the positive role of a firm’s technological sophistication on training determinants. Tan and Batra (1996), Zeufack (1999), and Tan and Lopez-Acevedo (2003), all show that R&D investment is an important determinant for training in Mexico, Malaysia, Thailand and Chinese Taipei. For Mexico this impact becomes even stronger over time (Tan and Lopez-Acevedo, 2003).
This is consistent with firms using a sophisticated production process and R&D requiring intensive training for workers to adapt to such a mode of operation.
OECD DEVELOPMENT CENTRE Working Paper No. 211 HUMAN CAPITAL FORMATION AND FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES by Koji Miyamoto
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